Accounting for Debentures

CBSE Class 12 Accountancy | 2026–27

1. Meaning

A debenture represents borrowed funds. Debenture holders are creditors and normally receive interest according to the terms of issue.

2. Issue at Par, Premium or Discount

Always separate the nominal liability from any premium or discount component. For example, 1,000 ₹100 debentures issued at 5% premium generate ₹1,05,000 cash while the nominal debenture amount is ₹1,00,000.

3. Interest

For 1,000 ₹100 debentures at 10%, annual nominal interest is ₹10,000. If the period is six months, the corresponding amount is ₹5,000, subject to the question’s dates and terms.

4. Issue for Consideration Other Than Cash

When a business or asset is purchased and consideration is discharged through debentures, first determine the purchase consideration, then determine the number/value of debentures issued and record the transaction.

5. Collateral Security

Debentures may be used as collateral security for a loan. Students must distinguish the primary loan liability from the collateral arrangement and follow the accounting method specified in the question.

6. Redemption

Redemption means repayment of debenture liability. Where redemption is at a premium, the premium forms part of the amount payable according to the terms.

🖼️ Debenture Lifecycle

Exam-Focused Questions

1. Pass entries for issue of debentures at par and premium.
2. Calculate interest for different periods.
3. Record issue for purchase consideration.
4. Record debentures issued as collateral security.
5. Pass redemption entries including premium where applicable.

MCQs

1. Debenture holders are creditors.
2. Interest on debentures is a charge against profit.
3. 1,000 ₹100 debentures at 10% carry annual interest of ₹10,000.
4. Redemption means repayment of debenture liability.
5. Premium on issue is different from interest expense. Correct.